Inflation

[sptrawler]

Where that becomes a problem is when it results in a loss of customers.

Same end result, if you are losing money from low prices, you go broke.
if you are losing customers, which means you are losing money, you go broke.

That's why such a high percentage of small businesses go broke in the first year, a business isn't always a license to print money.

When the minimum wage is lifted 5.75% all the input costs go up, because all your suppliers costs go up. The electricity suppliers costs, the water authorities costs, the trucking companies costs, the warehouse costs.
Every business that employs someone and supplies a service to another business passes that cost on.
I've known a few mates over the years that started businesses, none made a huge amount of money, the most successful has five child care businesses and doing o.k. but a lot of administrative headaches.
The good thing is, business walks in through the front door and it is always renewing.

 

[Value Hunter]

What you seem to be missing is, the only thing that the Government has any real control over is money and wages, in a capitalist system it is very seldom the Government interferes in the market place with regard prices, as has been shown when they have interfered in gas prices, super profit taxes etc.
Whereas wages, through the previous Industrial relation commission and now the fair work commission, is a playpen for Governments.
The Government actively encouraged wage rises and proudly admit it, which is fair enough, but as was pointed out by the RBA it is inflationary.

Corporate profiteering is only rampant, when there is either a lack of competition, or a excessive demand and limited supply of their product, if every corporation was making a huge profit companies wouldn't go broke. As I think David Jones will in the current economic climate.

When I was quoting for projects, an employees estimate for labour was 150% of their wage, to allow for superannuation, annual leave, leave loading, workers compensation, sick leave, long service leave, public holidays and public holiday loading, compulsory training days etc.
I don't know what it is these days.

But a 4% payrise would be on the basic rate, it won't include the other flow on payrises to keep relativity with the staff, unless your company only employs everyone on the basic wage.

On the 1 July 2023 the minimum wage went up 5.75%, that actually involves a knock on effect, believe it or not, where you pulled 4% from intrigues me..

Also it is the reason the proposed tax cuts won't be inflationary, because the cost of it isn't passed on to business, in the form of a payrise that would affect their bottom line.

The Government has very little control or mechanisms to control what shops charge, the shop charges what the market will bear, if the shopper isn't prepared to pay the price, or doesn't have the funds to pay the price, the goods don't get sold unless they are the only provider of an essential item.

They can charge what the hell they like, if wage earners don't buy it they go broke, with the holding costs.

https://www.fairwork.gov.au/newsroom/news/awr-2023#:~:text=Most%20employees%20are%20covered%20by,or%20after%201%20July%202023.

Company statistics reveal 62% jump in insolvencies

The 2022–23 financial year saw a significant spike in company insolvencies with personal insolvencies expected to follow a similar path this year.

www.accountingtimes.com.au

The worrying rise in corporate busts

More businesses are looking down the barrel of insolvency, as an economic slowdown crimps sales and squeezes profit margins as borrowing costs soar.

www.afr.com

Where I pulled the 4% from was the ABS statistics for the 12 months until end of November 2023. You can go look it up yourself to confirm.

And from memory only something like 15% of the workforce in Australia is on award wages and I have seen first hand many employees who are getting paid above award wages only got 3 or 4% pay increases so I am not sure I buy the flow on effect argument.

Also your 4% basic vs total cost argument makes no sense because everything goes up by the same proportional 4% if your pay goes up 4% your annual leave and sick leave etc all go up 4% so your total payroll expense still only increases by 4%. The relatively is the same.

And the statistics about payroll to revenue ratio includes the total payroll cost not just the headline salary as that has how the ratio is defined and calculated on total payroll cost.

And not true that government has no control of business pricing. Although they don't set prices directly, indirectly they affect the prices businesses charge consumers in a myriad of ways:

-They have control over approving takeovers which affects market concentration and ultimately pricing.

-They have some control over setting limits on premium increases on health insurance, they also have some regulatory influence over the prices that utilitilies (water, electricity, toll roads, airports, etc) charge consumers. In addition to this any corporate taxes (which the government controls) are a business expense which ultimately gets passed onto the consumer.

-Also the level of medicare rebates the government sets also has an impact on the net costs paid by consumers for health services and same goes for prescription medicines under the PBS.

-In addition government makes decisions which affect the supply of many commodties (exploration permits, mine approvals, fracking approvals, etc) which ultimately affects price

 

[Value Collector]

Also to the guys arguing about consumer demand nobody yet adressed the excerpt from the Eureka report article that I posted a few posts above about corporate profiteering. I will highlight the most important part below:

"In June last year, the International Monetary Fund said: “Rising corporate profits were the largest contributor to Europe’s inflation over the past two years as companies increased prices by more than the spiking costs of imported energy.”

It seems improbable that in Australia, a highly concentrated economy with a host of industries extracting monopoly rents, profiteering isn’t also a major cause of inflation.


The data bears this out, and not just in annual reports. Using the same ECB methodology, The Australia Institute finds that about 69% of the increase in inflation above the RBA’s target rate is due to corporate profiteering."


Also lets do some simple math on the "wage-price spiral thesis". For the last 12 months in Australia wages rose around 4%. A quick google search reveals that on average businesses typically spend between 15% and 30% of their revenue on payroll. So a 4% increase in wages would need an overall revenue (i.e. price increase) increase of between 0.6% and 1.2% to offset the additional cost.

According to the ABS "Monthly Overview The monthly CPI indicator rose 4.3% in the 12 months to November"

so where is the rest of the 4.3% increase (which other posters rightly pointed out is understated when you look at the living costs index) coming from and why is everybody so fixated on the wages bogeyman?

In regards to corporate profiteering, when it comes to the supermarkets, Woolies and Cole’s had their margins compressed during Covid due to the higher costs of their supply chain.

I haven’t had a chance to crack open the annual reports yet to show you the figures, but I suspect the increased profit margins since Covid ended, are really just profit margins normalising back to pre Covid levels.

 

[sptrawler]

AsI said in an earlier post the wife doesn't shop at WOW any more and I sold the shares a few years ago as the wife said they are price gouging. Since then we have been using Aldi, I have also noticed the foot traffic in Aldi is increasing which will probably affect WOW's bottom line.
At the end of the day, if the consumer stops buying from WOW, WOW has no option but to drop their prices, if the consumer is prepared to pay an exorbitant price WOW will charge it.

Grocery review won’t lower checkout prices: former ACCC chiefs

Former ACCC chiefs Graeme Samuel and Rod Sims say the review is unlikely to reduce people’s grocery bills.

www.afr.com

Two of Australia’s former competition chiefs, Graeme Samuel and Rod Sims, say the Albanese government’s threats to shake up supermarkets’ dealings with suppliers is unlikely to reduce the final price of groceries.
With Coles slashing the price of its beef, lamb and some 300 other products, and official figures putting inflation below estimates at 4.3 per cent in November – the lowest for nearly two years – the government announced former competition minister Craig Emerson would lead a review into the code of conduct signed by the four biggest retailer groups.

Nothing was off the table, Prime Minister Anthony Albanese warned the companies that had signed the Food and Grocery Code of Conduct – Woolworths, Coles, Metcash (supplier to IGA stores) and Aldi. The review was part of the government’s plan to pressure supermarket giants to reduce prices at the checkout.
“At a time when people are doing it tough, the big supermarket chains have been making record profits – and we know that there’s something out of sync there,” Mr Albanese said on Thursday. “My government is prepared to take whatever action is necessary.”
But Dr Emerson’s review of the code of conduct, which former ACCC chairmen Mr Sims and Mr Samuel said was important, is not expected to have an impact on consumers’ grocery bills.

Mr Samuel, who oversaw the last review of the code in 2018, said it had largely worked – relationships between retailers and suppliers had improved, complaints were now resolved by an independent arbiter, and there was more of a culture of fair dealings at the supermarket giants.

At the same time, Aldi, IGA and Costco were gaining ground and boosting competition, he said.

 

[qldfrog]

Where I pulled the 4% from was the ABS statistics for the 12 months until end of November 2023. You can go look it up yourself to confirm.

And from memory only something like 15% of the workforce in Australia is on award wages and I have seen first hand many employees who are getting paid above award wages only got 3 or 4% pay increases so I am not sure I buy the flow on effect argument.

Also your 4% basic vs total cost argument makes no sense because everything goes up by the same proportional 4% if your pay goes up 4% your annual leave and sick leave etc all go up 4% so your total payroll expense still only increases by 4%. The relatively is the same.

And the statistics about payroll to revenue ratio includes the total payroll cost not just the headline salary as that has how the ratio is defined and calculated on total payroll cost.

And not true that government has no control of business pricing. Although they don't set prices directly, indirectly they affect the prices businesses charge consumers in a myriad of ways:

-They have control over approving takeovers which affects market concentration and ultimately pricing.

-They have some control over setting limits on premium increases on health insurance, they also have some regulatory influence over the prices that utilitilies (water, electricity, toll roads, airports, etc) charge consumers. In addition to this any corporate taxes (which the government controls) are a business expense which ultimately gets passed onto the consumer.

-Also the level of medicare rebates the government sets also has an impact on the net costs paid by consumers for health services and same goes for prescription medicines under the PBS.

-In addition government makes decisions which affect the supply of many commodties (exploration permits, mine approvals, fracking approvals, etc) which ultimately affects price

Plus most of the cost at the pump goes to the government , as does stamp duty on insurance premium..or new houses bought.
If governments want to limit inflation, why not limit theextra $ taken as taxes instead of gorging on the increased taxes in %..as current governments do..yes dream on...

 

[sptrawler]

This article brings up an interesting side effect of the current inflationary cycle, I know it has had an affect on my kids with a mortgage, all of a sudden the days on being told don't worry Dad the mortgage isn't a problem, are over.
They are very concerned about the amount of working life they have available to pay off the mortgage, especially now as mine closures accelerate, scary times for many.
How the Government lands this, without collapsing house values will be interesting.
In the past it has usually been done with a recession, if they are going to avoid it with increasing wages, eventually that has to manifest in the economy somehow. Do prices continue to climb, or do they fall, in the past it just ended in a crash, this time who knows.
If wages don't have much of an effect, maybe businesses and real estate wont keep rising to what the market can bear this time.
Interesting times.

How skyrocketing interest rates changed a generation

Mortgage affordability is at its worst since 1990 as house prices rise further out of reach – and the fallout may be wide-ranging.

www.theage.com.au

The sharpest rise in interest rates in decades could leave younger Australians more cautious and risk-averse as they face more uncertainty, social and economic experts say.

But the silver lining could be to make future leaders more resourceful after adapting to a blowout in mortgage costs alongside other crises.
Experts say 13 consecutive interest rate rises have affected the psyche of a generation. The hiking cycle and housing crisis hit home within a few years of the catastrophic bushfires of 2019 and a series of floods – exacerbated by climate change – plus the pandemic.
The challenges faced by Millennials and Generation Z give the Baby Boomers’ experience in the 1980s and 1990s a run for their money, despite their 17 per cent interest rates, a stock market crash and a recession.

Even after former Reserve Bank governor Phil Lowe predicted rates would be on hold until 2024 and then had to reconsider, mortgage affordability is now at its worst since 1990 in Sydney and Melbourne, and a home owner who bought a typical house in April 2022 would now need to find an extra $2951 in monthly mortgage repayments in Sydney or $2085 in Melbourne. Sydney’s median house price hit a record of almost $1.6 million last week; Melbourne is above $1 million and rising.





ANU demographer Dr Liz Allen said uncertainty had filtered through every aspect of younger Australians’ lives.

“We have housing insecurity, alongside housing affordability issues, paid work insecurity, and climate disaster looming. We have enormous elements of gender inequality,” Allen said.

She said wages failed to keep up with rising house prices and mortgage rates, which affected many middle-class young Australians’ decisions and ability to take calculated risks.
“It disrupted and uprooted lives and the psyche of people,” Allen said. “We have this perfect storm of uncertainty, which necessarily will impact decision-making about the types of risks and chances people take.”
The slow ratcheting of housing unaffordability thanks to 13 rate rises had crushed the Australian dream of homeownership, demographer Mark McCrindle said.
“It sounds like it’s an economic problem, but it’s at its core, a very emotional issue. Home ownership is about family. It’s about neighbourhood. It’s about community,” McCrindle said.
He said there was an understandable sense of angst among a generation who felt the social contract of working hard to get ahead had frayed, even after adapting by moving further away, opting for units and working side-hustles.

“But when even with all of that, it just no longer becomes feasible – that is read as a breach in the social contract. The deeper problem with that is that home ownership is a key element of community cohesion,” McCrindle said.
He said younger generations were less likely to be able to chase better suited jobs, fulfilling pursuits, volunteering and even having children.

 

[qldfrog]

This article brings up an interesting side effect of the current inflationary cycle, I know it has had an affect on my kids with a mortgage, all of a sudden the days on being told don't worry Dad the mortgage isn't a problem, are over.
They are very concerned about the amount of working life they have available to pay off the mortgage, especially now as mine closures accelerate, scary times for many.
How the Government lands this, without collapsing house values will be interesting.
In the past it has usually been done with a recession, if they are going to avoid it with increasing wages, eventually that has to manifest in the economy somehow. Do prices continue to climb, or do they fall, in the past it just ended in a crash, this time who knows.
If wages don't have much of an effect, maybe businesses and real estate wont keep rising to what the market can bear this time.
Interesting times.

How skyrocketing interest rates changed a generation

Mortgage affordability is at its worst since 1990 as house prices rise further out of reach – and the fallout may be wide-ranging.

www.theage.com.au

The sharpest rise in interest rates in decades could leave younger Australians more cautious and risk-averse as they face more uncertainty, social and economic experts say.

But the silver lining could be to make future leaders more resourceful after adapting to a blowout in mortgage costs alongside other crises.
Experts say 13 consecutive interest rate rises have affected the psyche of a generation. The hiking cycle and housing crisis hit home within a few years of the catastrophic bushfires of 2019 and a series of floods – exacerbated by climate change – plus the pandemic.
The challenges faced by Millennials and Generation Z give the Baby Boomers’ experience in the 1980s and 1990s a run for their money, despite their 17 per cent interest rates, a stock market crash and a recession.

Even after former Reserve Bank governor Phil Lowe predicted rates would be on hold until 2024 and then had to reconsider, mortgage affordability is now at its worst since 1990 in Sydney and Melbourne, and a home owner who bought a typical house in April 2022 would now need to find an extra $2951 in monthly mortgage repayments in Sydney or $2085 in Melbourne. Sydney’s median house price hit a record of almost $1.6 million last week; Melbourne is above $1 million and rising.



View attachment 169764

ANU demographer Dr Liz Allen said uncertainty had filtered through every aspect of younger Australians’ lives.

“We have housing insecurity, alongside housing affordability issues, paid work insecurity, and climate disaster looming. We have enormous elements of gender inequality,” Allen said.

She said wages failed to keep up with rising house prices and mortgage rates, which affected many middle-class young Australians’ decisions and ability to take calculated risks.
“It disrupted and uprooted lives and the psyche of people,” Allen said. “We have this perfect storm of uncertainty, which necessarily will impact decision-making about the types of risks and chances people take.”
The slow ratcheting of housing unaffordability thanks to 13 rate rises had crushed the Australian dream of homeownership, demographer Mark McCrindle said.
“It sounds like it’s an economic problem, but it’s at its core, a very emotional issue. Home ownership is about family. It’s about neighbourhood. It’s about community,” McCrindle said.
He said there was an understandable sense of angst among a generation who felt the social contract of working hard to get ahead had frayed, even after adapting by moving further away, opting for units and working side-hustles.

“But when even with all of that, it just no longer becomes feasible – that is read as a breach in the social contract. The deeper problem with that is that home ownership is a key element of community cohesion,” McCrindle said.
He said younger generations were less likely to be able to chase better suited jobs, fulfilling pursuits, volunteering and even having children.

Seriously:

We have housing insecurity, alongside housing affordability issues, paid work insecurity, and climate disaster looming. We have enormous elements of gender inequality,”

The last sentence...pure woke BS...
How can we take anything from a person writing this with any seriousness?
ANU academic....
In 2024 Australia: women are more educated, better paid on entry level jobs and legally advantaged.
Sure the tradies are still making a fortune but in mining for example.not small a sector, women are unshamely favored
So your dick or absence of is more important than your skillset or experience..which might explain a few hiccups among the majors...
Anyway this dw managed to play the following cards: global warming, sexism, and industrial relation in talking about inflation....
But guess what :no mention of migration....

 

[InsvestoBoy]

h/t forexfactory.com

 

[over9k]

HIGHER FOR LONGER


Tech continues to keep beating the rates vs earnings tug of war however

 

[mullokintyre]

View attachment 170102

HIGHER FOR LONGER


Tech continues to keep beating the rates vs earnings tug of war however

The problem is, these labor figures are absolute bull$it.
A quick perusal of the data behind the headlines shows that

(a) The headline big rise in average hourly earnings - up 10% from 4.1 to 4.5 %.
This on the face of it is excellent for workers.
Unfortunately, the way the BLS manged to get to that percentage was not by increasing overall wages, but by cutting the average hours worked for employees to levels not seen since COVID.
no explanation is given as to why the average hours worked was cut.
And the average hours worked has been pulling back according to the BLS since the post covid surge.



(b) All of the growth for the entire year has been in part time jobs.

Consider this: the BLS reports that in January 2024, the US had 133.1 million full-time jobs and 27.9 million part-time jobs. Well, that's great... until you look back one year and find that in February 2023 the US had 133.2 million full-time jobs, or more than it does one year later! And yes, all the job growth since then has been in part-time jobs, which have increased by 870K since February 2023 (from 27.020 million to 27.890 million).

(c) in January, the BLS conducted its annual "annual re-benchmarking and update of seasonal adjustment factors." Long story short, what was until December a decline in jobs has now been miraculously transformed into gains, as shown in the chart below.

So prior to this month, we had a year where every month was revised downwards in post month figures, it suddenly changed at the end of the year to being all revised upwards.
Only a statistician or con man (whats the difference) could come up with such totally ridiculous figures.
And then there is the persistence widening variations between the actual payrolls report and the survey report.

All data taken from Zero Hedge
The market responded according to the headline figures.
Over the next few days, watch what happens when the market starts tio analyse these figures.
Mick

 

[Knobby22]

The problem is, these labor figures are absolute bull$it.
A quick perusal of the data behind the headlines shows that

(a) The headline big rise in average hourly earnings - up 10% from 4.1 to 4.5 %.
This on the face of it is excellent for workers.
Unfortunately, the way the BLS manged to get to that percentage was not by increasing overall wages, but by cutting the average hours worked for employees to levels not seen since COVID.
no explanation is given as to why the average hours worked was cut.
And the average hours worked has been pulling back according to the BLS since the post covid surge.
View attachment 170119


(b) All of the growth for the entire year has been in part time jobs.


(c) in January, the BLS conducted its annual "annual re-benchmarking and update of seasonal adjustment factors." Long story short, what was until December a decline in jobs has now been miraculously transformed into gains, as shown in the chart below.
View attachment 170120
So prior to this month, we had a year where every month was revised downwards in post month figures, it suddenly changed at the end of the year to being all revised upwards.
Only a statistician or con man (whats the difference) could come up with such totally ridiculous figures.
And then there is the persistence widening variations between the actual payrolls report and the survey report.
View attachment 170121
All data taken from Zero Hedge
The market responded according to the headline figures.
Over the next few days, watch what happens when the market starts tio analyse these figures.
Mick

Also we know that there is a lag factor to the effect of interest rates. If the Fed act too slowly they may overcook it and cause the recession. Feels like the US economy is on a knife edge to me.

 

[Bailxtrader]

The consumer price index (CPI) rose just 0.6 per cent in the December quarter, representing the smallest quarterly rise since the March 2021 quarter. The RBA's preferred measure of underlying inflation, the trimmed mean, which excludes temporary price changes, also showed a deceleration, rising 4.2 per cent annually, down from 5.1 per cent in the September quarter.



Adding to the positive official quarterly figures, the latest monthly estimate of inflation for December rose 3.4% from a year earlier, down from 4.3% previously and also below expectations of 3.7%.



This inflation data comes amidst other signs of a cooling economy. The labour market shed 65,000 jobs in December, while the unemployment rate held steady at a historically low 3.9 per cent. Retail sales earlier this week were surprisingly weak, dropping -2.7% over the month vs estimates of a -1% drop, marking the biggest monthly decline since the pandemic lockdowns in mid-2020.

This softer-than-expected inflation data has boosted speculation for rate cuts, with interest rate futures now pricing a full 0.25% rate cut as soon as August, brought forward from September prior to the meeting. This has translated into a weaker Australian Dollar which is -0.45% lower at 0.6572 while the ASX200 has reversed initial losses to trade 0.31% higher.

 

[over9k]

Yeah xjo loved it.

 

[Belli]

My insurance went from $1,313.85 to $1,687.28 (28.4%) so looks like I got out of it cheaply.

That was last year. This year it's gone from $1,687.28 to $2,261.48, an increase of 34%. $205.58 of that is GST.

Happy days, eh?

 

[qldfrog]

That was last year. This year it's gone from $1,687.28 to $2,261.48, an increase of 34%. $205.58 of that is GST.

Happy days, eh?

Shop around. I saved $800 on the home insurance and more than $700 on 2 cars.
apple to apple
As soon as you are a customer of a company, they rip you off on renewals expecting inertia/laziness from established customers ...

 

[Belli]

Shop around.

Nope. The policy I have, and have had for many years, is new for old. Complete replacement. No requirement to price rebuilding costs, etc. No danger of being under insured which can be a financial killer if pro-rata is involved.

 

[qldfrog]

Nope. The policy I have, and have had for many years, is new for old. Complete replacement. No requirement to price rebuilding costs, etc. No danger of being under insured which can be a financial killer if pro-rata is involved.

So pay more if you are sure this is the only provider which offer you that?
In both houses and cars, we ended up with superior covers.
If you buy a new for old policy, you join the pack who might be interested in a fire burning a termite infested building for insurance claim.
a few % only maybe but has to be paid for, and you do.
Unless you have had a termite infestation

 

[Belli]

So pay more if you are sure this is the only provider which offer you that

I have done a search and it is the only provider I can find who offers this. There are others which have the option of insuring an additional 30% of the sum insured (the premium difference compared with the current provider is 2/5th of bugger all). That maybe worthwhile but it depends on getting the base numbers correct to ensure complete coverage.

To my mind, insurance isn't only about the premium paid each year.

Actually, it can be argued if you never have to make a claim, home insurance is wasted money. Guess it depends on the level of risk you are willing to accept.

 

[qldfrog]

I have done a search and it is the only provider I can find who offers this. There are others which have the option of insuring an additional 30% of the sum insured (the premium difference compared with the current provider is 2/5th of bugger all). That maybe worthwhile but it depends on getting the base numbers correct to ensure complete coverage.

To my mind, insurance isn't only about the premium paid each year.

Actually, it can be argued if you never have to make a claim, home insurance is wasted money. Guess it depends on the level of risk you are willing to accept.

Our house insurance does not even include a $ sum, lots of proof of building materials, state of finitions and photos..
Many of the insurances are indeed wasted money and I actually read that no one wealthy enough should insure thru insurance premiums..
But we are not wealthy enough to be able to afford a whole building 1.5m plus cost..so we pay insurances

 

[over9k]

Big oof.